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London Gold Market Report

Mon, Jun 29 2009, 12:56 GMT
by Adrian Ash

BullionVault.com

Gold Still "Tracking the Dollar" as Money Supply Slows Outside China, Advisors Ignore Precious Metals

THE SPOT PRICE of gold bullion rose 0.7% from an early dip to $936 an ounce in London on Monday, lagging a 1.0% rally in European equity markets.

Crude oil recovered to just below $70 per barrel, despite a cut in global oil-demand forecasts at the International Energy Agency.

Copper rose as Shanghai reported a sharp drop in stockpiles, but long-dated government debt prices also rose, pushing the yield offered by 10-year US Treasuries down to a five-week low of 3.47%.

"The main driver of gold at the moment is moves in the US Dollar," writes UBS chief metals strategist John Reade in a note to clients quoted by Bloomberg.

Pointing to weak jewelry demand and subdued Gold Coin and small-bar sales, "At the moment, Gold ETF inflows are associated with fear, not greed, and there has been less fear around recently," he adds.

Monday morning saw the US Dollar slip back to $1.40 per Euro, while the British Pound re-tested resistance above $1.6570.

That capped the Gold Price in Sterling below £569 per ounce, more than 18% below Feb.'s record high.

Citing "a busy week of data releases" between now and Friday's Fourth of July holiday on Wall Street, "the second-quarter [of 2009] draws to a close on Tuesday," adds Walter de Wet at Standard Bank, "which might see portfolio rebalancing and short-term tactical positioning of funds and may add to the volatility.

"While a week is a long time in these markets, precious metals could stay range-bound until at least Thursday, when we see the ECB interest rate decision as well as the release of US non-farm payrolls."

New data released early Monday kick-started the week with a worse-than-expected drop of 29.5% in Japan's Industrial Production last month from April.

Sales at larger Japanese Retailers sank 6.5% month-on-month.

Industrial confidence across the 16-nation Eurozone meantime recovered further from March's record low, but it remained deeply negative according to the European Commission's latest survey.

On the monetary front, New Zealand's M3 supply showed much slower-than-hoped growth for May, while here in the UK, City corporations such as stock brokers and investment funds joined households and non-financial firms in suffering a sharp slowdown in money-supply growth.

Lending to businesses outside the Square Mile and Edinburgh's financial district shrank for the second month running.

Across in Beijing, in contrast, China Business News today quotes cabinet-linked economist Wei Jianing warning that 20% of new local bank lending is going into stock-market speculation, with a further 30% going into domestic Chinese real estate.

"Gold weekly chart is showing as an 'Outside Up' week," says last Friday's closing note from London market-makers Scotia Mocatta.

"From a Fibonacci retracement perspective gold bounced off 913, which is its 38.2% retracement support from the 865 to 990 up move," the technical analysis adds, setting an initial target of $951.50 with support rising to $933 an ounce.

Latest data from US watchdog the Commodity Futures Trading Commission (CFTC) showed both the ever-bullish speculators and ever-bearish commercial traders pulling in their horns last week.

Overall, the total volume of all Comex Gold Futures and options outstanding shrank by almost 2%, hitting a 6-week low alongside the "net long" position held by hedge funds and other large speculators.

Amongst commercial traders acting for refineries, bullion banks and jewelry wholesalers, the bullish ratio measuring their long-gold positions ticked higher from a 20-month low. But it remained very depressed as a proportion of their gold betting at 28.4%.

Meantime for private investors, "Our research points to a failure to diversify adequately," says Marcus Grubb at gold-miner funded marketing group the World Gold Council today.

Surveying more than 300 advisors and over 300 private investors in the United Kingdom, new research from the WGC shows half of all investors wanted "capital preservation" even before the financial crisis began.

Their advisors, in contrast, were focused 2-to-1 on capital appreciation.

"Investors were simply not advised to invest in those assets with the best diversification properties," says Grubb.

Some 83% of investors said their advisors had no position or viewpoint to offer whatsoever on gold, according to the WGC's survey.

A new book published this week by risk-management and derivatives specialists Risk Books – Inflation Risks & Products – covers index-linked bonds, real estate and commodities under a chapter on "traditional assets".

Gold and precious metals do not feature at all in the table of contents.

Published on  Mon, Jun 29 2009, 12:57 GMT